Nearly 19 months ago, the early days of COVID-19 brought an abrupt and severely disruptive awakening to many parts distributors who turned out as poorly prepared for unexpected upheavals.
The temporary closures of some global distribution centers, multiple unpredicted shortages, and among others, supplier instability radically altered traditional business models. The changes were substantial, and it soon became apparent that most are likely to prove permanent.
The global distribution of spare parts has been buffeted markedly by the initial outbreak of COVID-19, putting most business models under unprecedented strain. Some still offered essential services but soon realized that maintaining their existing distribution systems has grown strenuous and unfeasible. Parts are often imported from global sources and distributed in international networks. Yet few planned for large-scale disruptions in international supply chains. Industry players were caught hugely unprepared in keeping both the supply and distribution flowing as production cuts continued, tight trade restrictions emerged, and supplier instability increased by the day.
Distributors faced swift parts availability issues. Though impeded by delays and shortages in supplies, soaring demand pushed many to adjust their distribution network to facilitate global parts placement and handle a growing backlog of orders. New priorities also came to the fore as pressure mounted on both independent and OEM-authorized distributors to get closer to customers in multiple locations, react to impromptu changes in buyer demands, and enhance safety standards to prevent COVID-19 transmission.
This article sets to explore how a once-in-a-century crisis disrupted parts distribution channels and look at which business models invented or reinvented during the pandemic are more likely to persist.
COVID-19 Exerted a Disruptive Influence on Spare Parts Distribution
Early in the pandemic, there has been a lot of interest in securing spare parts distribution. This matter has sparked reactions across industrial sectors mainly because COVID-19 has made nearly all aspects of previously existing distribution systems untenable. Both direct and indirect distribution channels were affected in ways few could have expected. Many distribution firms experienced a bulging increase in parts demand and yet were left with few options to confront:
- Unintended closures of distribution facilities
- Supply network constraints
- Months-long distribution delays
- A lack of newly required skills and knowledge
- Fragmented distribution networks
Despite the shortcomings, industry players brought order to their fragmented networks through a higher dependency on localized supply and regional distributor partnerships. Though most were excessively reliant on a single source of supply for spare components and raw materials, perspectives shifted as COVID-19 revealed the weaknesses behind this dependency. Most understood the importance of diversifying sources in strategically located geographies to secure spares availability but took more leaps to keep their distribution chain moving and:
- Moved distribution centers in closer proximity to customers for faster fulfillment and reduced costs
- Optimized transportation routes to avert potential blockages and better estimate distribution times
- Launched a contactless parts order and pickup service to maintain a safety focus
- Printed replacement 3D parts customized based on client requirements to meet urgent and scheduled delivery dates
Perhaps the early pivot to e-Commerce was the most lucrative of all undertakings. Customers troubled by record wait times for service turned to digital channels to search for information and purchase parts, prompting a big lump of conventional distributors to step up investments in e-Commerce. Touted to emerge as the mainstream distribution channel by 2025, e-Commerce opened new doors for distributors to provide detailed parts information, broaden coverage, and drive faster fulfillment amid COVID-19 chaos.
The spike in e-Commerce activity has further triggered the importance of building an omnichannel distribution system. Omnichannel models put distributors in a better position to serve and retain online clients through agile cross-channel fulfillment options. Growth losses were likely heavy for those who failed to prepare for omnichannel distribution.
The Pandemic Initiated Lasting Changes in Business Models
The industry’s first step in facing up to the COVID-19 pandemic has been characterized as predominantly reactive and mapped out for the short term. But even if the current pandemic were to recede soon, its impact is likely to last for years to come. Firms must now think for the long term and take advantage of new developments in business models for a more resilient spare parts management:
- As-a-Service Offerings
As-a-Service models have shot to popularity soon after COVID-19 uprooted business as usual.
Distribution-as-a-Service serves as a vital enabler for market expansion. As firms rely more on global logistics networks, many step up to provide a subscription-based availability of spare components. Every customer who utilizes this service is charged a recurring fee for the immediate supply of replacement parts. The spares should be of high quality and readily available when and where the customer demands their distribution. Firms counting on As-a-Service models make good on such promises because the whole infrastructure is networked for a better flow of supply and distribution.
- Spare Parts On Demand
The early phase of the pandemic resulted in an alarming non-availability of critical parts. Yet, in many industrial sectors, the demand was unrelenting.
One of the first responses to the abrupt pandemic-induced shortages was to substitute physical components with 3D-printed parts. This move pushed industry players to produce custom-designed parts upon customer request and distribute the replacements shortly after. More distributors are now bent on coordinating investments into 3D parts fabricated on demand to reduce the limitations of global supply chains, increase service, and maximize profits at minimum costs.
- Omnichannel Distribution
Industry players have expressed their intention to transition to multichannel distribution as the pandemic continued.
Utilizing more than one channel of distribution offers access to untapped markets and larger audiences. But the demand for integrated multichannel experiences is still high. Firms will, in all probability, continue investments in omnichannel distribution to integrate digital with other traditional channels and seamlessly meet the new standard of ordering parts online and having them delivered at a nearby pickup point.
A Hybrid Future Is in Sight
The spare parts sector is heading more and more towards a hybrid online/offline future of distribution.
But the work is not yet done. Resilience ahead of the next major crisis is built primarily upon the continuous consolidation of distribution networks, well-managed partnerships, and routine risk assessments.